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Simple English definitions for legal terms
common-stock equivalent
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A quick definition of common-stock equivalent:
Common-Stock Equivalent: A type of investment that can be exchanged for common stock, which means it is considered the same as owning common stock. Examples of common-stock equivalents include things like convertible securities, stock options, and warrants.
A more thorough explanation:
COMMON-STOCK EQUIVALENT
A common-stock equivalent is a type of security that can be exchanged for common stock, and is therefore considered to be the same as common stock. This includes convertible securities, stock options, and warrants.
- A convertible bond is a type of common-stock equivalent because it can be converted into common stock at a predetermined price.
- A stock option is another example of a common-stock equivalent. It gives the holder the right to buy common stock at a predetermined price.
- A warrant is a type of security that gives the holder the right to buy common stock at a specific price within a certain time frame. It is also considered a common-stock equivalent.
These examples illustrate how common-stock equivalents can be exchanged for common stock, and therefore have similar value and characteristics as common stock.